You’ve heard the expression, "beg, steal or borrow."
Well, I don’t know about begging or stealing. But when it comes to borrowing, things are going slow.
That’s the conclusion drawn in the Wall Street Journal today. It cited the latest lending data from the Federal Reserve by commercial banks.
During Q1, total loans and leases extended by commercial banks in the U.S. were up just 3.8% from a year earlier. (As of March 29.)
That compares with 6.4% growth in all of 2016, and 7.6% year-over-year growth as of late October.
Moreover, loans to businesses have slowed significantly. The latest data shows commercial and industrial loans up just 2.8% from a year earlier, compared with 8.9% growth in late October.
Here’s how the WSJ sums it up:
The slowdown is more surprising given the rise in business and consumer confidence since the election. And it is worrisome because the lack of business investment is considered an important reason why economic growth has remained weak.
Indeed, the rising optimism in the economy that’s been reflected in survey data is something that’s helped drive the price of equities higher since the election of President Trump.
Yet the data on lending since November has been on a different trajectory.
The chart here of U.S. commercial bank loans and leases shows a distinct downturn, just after a brief post-election spike.
Then that trend has basically gone down since, with a big decline in March.
Now, there are a lot of theories about why this is happening. And the WSJ article covers some of the potential reasons.
One theory is that companies have been going to corporate bond markets to lock in low interest rates in order to pay down more-expensive bank debt.
The article cites the 18% rise in corporate bond issuance in Q1, as reported by the Securities Industry and Financial Markets Association, as support.
Another theory is that economics in the oil industry are very different this year vs. last year. Recall that in Q1 2016, many oil companies used bank lines of credit for financing, as oil prices were falling sharply.
In Q1 2017, however, oil prices were higher, and those same companies are paying back those bank lines (i.e. not borrowing).
To me, the likelier explanation at the root of the borrowing slowdown is political uncertainty.
While we have seen consumer confidence and business sentiment trend higher since Election Day, those metrics are "soft" data.
When it comes to the actual, "hard" data, the numbers just aren’t there.
In other words, there is a disconnect between attitudes and actions … and that is being reflected in the lending data.
Here’s how the WSJ puts it:
Consumers and businesses may express greater confidence since the election, but many might still hesitate to take out big-ticket loans to fund new projects until they have greater clarity on the outlook for tax, trade and healthcare policy.
It’s this hesitation due to political uncertainty that I suspect has tamped-down lending. But just how much that hesitation will translate to the bottom line of banks in Q1 is what we need to find out next.
Fortunately, we will start to discover some answers as early as Thursday morning. That’s when some of the biggest banks — Citibank (C), JPMorgan (JPM), PNC Financial Services (PNC) and Wells Fargo (WFC) report earnings.
|Citi, JPM, PNC and Wells are sitting on double-digit gains post-election.|
For the current rally in markets to get a boost, and particularly the recently ailing bank stocks, we will need to see strong numbers from these stalwarts.
We’ll also need to see upbeat commentary from management about the current climate, and about the outlook for the next several quarters.
If things start to look sketchy, then look out below.
As for something that’s looking up, our resident small-cap mining expert Sean Brodrick says that not only was gold knocking on heaven’s door today … but it kicked that door in! Here’s Sean with the details …
Mining for Money
Gold is Knock-Knock-Knockin’ on Heaven’s Door
By Sean Brodrick
Gold has been knockin’ on overhead resistance for weeks now. As I write this, I don’t know how the day will end. But it sure looks like a breakout in the making.
Here’s an updated version of the chart I showed you last week in my column, "Maps to Treasure Island."
In this chart, I’ve added today’s action on the far right. Gold touched $1,275 this morning.
Meanwhile, you can see gold’s uptrend and the overhead resistance that held it in place. Oh, how gold has wanted to trade above $1,260 for so long. KNOCK-KNOCK-KNOCK!
But each time, the bears have been able to bar the door and turn back the metal’s surge.
On Friday, gold tried to rally bigly. But the bears came in and sold the metal back down again. Still, the trading volume painted a very bullish picture. You might say the volume looks like gold gave bears the finger.
On Monday, the bears tried to follow through and sell off gold deeper. And it dipped. But the bears got nowhere. And bearish volume was tepid.
Then today, Tuesday, we got bullish follow-through. BOOM! Gold not only knocked on heaven’s door, with apologies to Bob Dylan, it kicked the door in.
So what’s behind this move? I mean, besides Peak Gold, investor demand, a new big bull gold cycle, and all the things I’ve been pounding the table about for weeks.
You can thank President Trump.
See, President Trump already gave the world jitters by launching cruise missiles at Syria. Did I say jitters? It was a presidential load of righteous fury delivered by 59 Tomahawks screaming across the sky.
It made some investors more nervous than a 9-tailed cat in a room full of rocking chairs. That’s what sparked gold’s bullish move on Friday … before the bears put a lid on it.
This week, President Trump thinks North Korea is a problem. And he’s willing to solve that problem, with or without China.
North Korea is a nuclear power. You can see how this makes investors around the globe nervous. And when investors get nervous, they run for gold.
The gold-plated question is, will this rally last?
I expect when the North Korea situation is resolved, one way or another, that will spark profit-taking in gold. That’s why I’m not buying the metal today.
But profit-taking could be brief. That big uptrend remains in place. So if and when we get profit-taking, that will be our next buying opportunity.
And if the door to heaven remains open, gold is done knockin’. There’s no telling how high it will go.
All the best,
The Dow was down more than 100 points in early trade today. Traders tried to gauge geopolitical threats from the likes of Russia (with Secretary of State Rex Tillerson visiting Moscow), North Korea (which warned of "catastrophic consequences" if the U.S. makes a move against it) and Syria (post-chemical attacks and missile strikes). But by late Tuesday, stocks rallied back to just below breakeven.
• Gold gained $20 per troy ounce, as nervous traders gave it a 1.6% bump.
• United’s quarter-billion-dollar problem: United Continental (UAL) fell 1.1% after yesterday’s incident on Flight 3411. This translated into a lost $250 million in market cap.
• Buffett’s other airlines got a big bump, though: The world’s most-famous investor famously loaded up on airlines recently. But UAL’s loss was American’s (AAL, +3.8%), Delta’s (DAL, +1.5%) and Southwest’s (LUV, +0.7%) gain.
• Brazil’s third-largest airline went public today. JetBlue founder David Neeleman launched Azul (AZUL) in 2008.
• Retailer recession? There were nine retailer bankruptcies in calendar-year 2016 … but nine in Q1 2017 alone. Payless Shoes, HHGregg, BCBG Max Azria, Wet Seal and Limited Stores were among those to file for Chapter 11 protection so far this year. At this pace, 2017 could see the highest number since 2009, when 23 companies went out of business.
Good luck and happy investing,
Uncommon Wisdom Daily